Study Finds Taxing the Internet May Cause it to Shrink

Citing a study by the University of Chicago and National Bureau of Economic Research, the Americans for Tax Reform warned last week that new schemes to impose sales tax collection to e-commerce may cause the market to shrink significantly.

The study, which included an analysis of 25,000 people with online access, found that local taxation plays an influential role in online commerce and that that people living in places with high tax rates are significantly more likely to purchase goods online. As a result, applying a national sales tax collection system to the Internet may force a contraction of the e-commerce market by up to 24 percent or more.

Ron Nehring, director of national campaigns for Americans for Tax Reform,

said such a result would be "a nightmare for small business owners and entrepreneurs. Many online retailers and traditional retailers' online ventures are in the red, and are counting on future growth to reach profitability. A 24 percent contraction would push many of these ventures to the brink and force others to close up shop entirely."

Americans for Tax Reform is a member of the "e-Freedom Coalition," which is made up of more than 30 taxpayer, consumer and public policy groups that recently presented a proposal calling for a permanent ban on sales and use taxes that apply to online commerce to the federal Advisory Commission on Electronic Commerce.